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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) MARCH 23, 1998
KOGER EQUITY, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State of incorporation or organization)
1-9997 59-2898045
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(Commission File Number) (IRS Employer Identification No.)
3986 BOULEVARD CENTER DRIVE
JACKSONVILLE, FLORIDA 32207
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 398-3403
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N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On March 23, 1998, the due diligence period ended and Koger Equity, Inc.
(the "Company") agreed to purchase (i) four office buildings containing
approximately 318,000 gross square feet, (ii) a retail development consisting
of seven buildings containing approximately 112,600 gross square feet and (iii)
22 acres of developable land (the "Colonnade Acquisition"). These properties
will be acquired for approximately $58.4 million on or about March 31, 1998 and
are located in Birmingham, Alabama. The funds required for this acquisition
will be drawn from the Company's secured revolving credit facility.
The Company considered various factors in determining the price to be paid
for this acquisition. Factors considered include nature of the tenants and
terms of leases in place, opportunities for alternative and new tenancies,
historical and expected cash flow, occupancy rates, current operating costs on
the properties and anticipated changes therein under Company ownership, the
physical condition and location of the properties, need for capital
improvements, the anticipated effect on the Company's financial results, and
other factors. The Company takes into consideration capitalization rates at
which it believes other comparable properties have recently sold. However, the
Company determines the price it is willing to pay primarily on the factors
discussed above relating to the properties themselves and their fit into the
Company's existing operations. No separate independent appraisals were
obtained in connection with this acquisition. The Company, after
investigation, is not aware of any material factors, other than those discussed
above, that would cause the financial information reported not to be
necessarily indicative of future operating results.
The Company is currently engaged in negotiations for the acquisition of a
property which would be made by a newly formed so-called "downREIT" limited
partnership with the Company as general partner. This property includes an
approximately 51-acre office park with buildings containing in excess of
530,000 square feet and additional property which will accommodate
approximately 160,000 feet of office development. The purchase price of $53.8
million is payable by assumption of approximately $22.5 million of debt and
under certain circumstances either (i) issuance of downREIT limited partnership
units having a minimum value of approximately $17.5 million up to a maximum
value of $23.3 million with the balance in cash, or (ii) in the alternative
this acquisition may be accomplished by cash and assumption of debt. The
partnership units would be convertible into a minimum of approximately 762,000
shares and a maximum of approximately 1,015,000 shares of the Company's Common
Stock (or at the option of the Company such units may be redeemed for cash).
No binding purchase agreement has been signed at this time, and there can be no
assurance that this proposed acquisition will be consummated. Based on
information supplied to the Company by the current owner, the rentals revenues
and operating expenses (excluding management costs) of these properties for the
twelve months ended December 31, 1997 were approximately $7.1 million and $2.4
million, respectively.
David B. Hiley, a Director of the Company since 1993 and Chairman of the
Finance/Investment Committee of the Company's Board of Directors is joining the
Company as its Executive Vice President and Chief Financial Officer effective
April 1, 1998. Mr. Hiley has had an extensive career in financial management,
currently serving as a full-time consultant to Nortek, Inc., in Providence,
Rhode Island. He formerly was Managing Director of Berkshire Capital
Corporation; a Director and former Senior Executive Vice President and head of
investment banking for Thomson McKinnon Securities, Inc.; and a Director of
Newcity Communications, Inc. prior to its recent sale. Mr. Hiley is a graduate
of Dartmouth College and received his M.B.A. degree from the Amos Tuck School;
he is 59 years old.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statements, pro forma financial information
and exhibits, if any, filed as part of this report.
(a) Financial Statements of Real Estate Acquired.
Statement of Revenues and Certain Expenses of Birmingham Colonnade
for the year ended December 31, 1997.
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the properties known as Birmingham Colonnade for the year ended December 31,
1997. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of Form 8-K of Koger Equity,
Inc. as a result of the acquisition of these properties). Material amounts,
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from future operations of the
acquired properties are excluded and the statement is not intended to be a
complete presentation of the acquired properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of Birmingham
Colonnade for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
March 19, 1998
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BIRMINGHAM COLONNADE - BIRMINGHAM, ALABAMA
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES:
Rental income $5,376,674
Recoverable expenses 2,089,307
Other income 88,208
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Total revenues 7,554,189
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CERTAIN EXPENSES:
Property operating 2,259,761
Real estate taxes 331,756
Management costs and fees 479,355
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Total certain expenses 3,070,872
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REVENUES IN EXCESS OF CERTAIN EXPENSES $4,483,317
==========
</TABLE>
See notes to statement of revenues and certain expenses.
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BIRMINGHAM COLONNADE - BIRMINGHAM, ALABAMA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Birmingham Colonnade, an office and retail development located in
Birmingham, Alabama, will be acquired by Koger Equity, Inc. on or about March
31, 1998. The statement of revenues and certain expenses includes information
related to the operations of Birmingham Colonnade for the period from January
1, 1997 through December 31, 1997 as recorded by the properties' previous
owner, CSL Colonnade Associates, a Georgia joint venture.
The accompanying historical financial statement information is presented
in conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1997 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs
not directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases.
PROPERTY OPERATING EXPENSES - Property operating expenses consist
primarily of utilities, insurance, repairs and maintenance, security and
safety, cleaning and other administrative expenses.
MANAGEMENT COSTS AND FEES - The property was managed by an affiliate of
the previous owners for a property management fee of 3% of rental and other
revenues plus reimbursement of personnel and other costs related to management
of the properties.
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Certain of the leases in force at December 31, 1997
included early termination provisions. Future minimum rentals under all
operating leases (including those with early termination provisions) of
business tenants as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ ------
<S> <C>
1998 $ 4,867,339
1999 4,460,724
2000 3,716,213
2001 3,023,805
2002 2,634,121
Thereafter 4,607,129
-----------
Total $23,309,331
===========
</TABLE>
For the year ended December 31, 1997, one tenant, UHC Management, contributed
more than ten percent of rental revenues.
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(b) Pro Forma Financial Statements
The following unaudited pro forma financial statements set forth (i) the
pro forma balance sheet as of December 31, 1997, as if the acquisition occurred
on December 31, 1997, and (ii) the pro forma statement of operations for the
year ended December 31, 1997, as if the acquisition occurred on January 1,
1997. The pro forma financial statements are based upon assumptions contained
in the notes thereto and should be read in conjunction with such notes.
The following unaudited pro forma financial statements may not necessarily
reflect the results of operations or financial position of the Company which
would have actually resulted had the acquisition occurred as of the date and
for the periods indicated, nor should they be taken as indicative of the
future results of operations or the future financial position of the Company.
Differences would result from various factors, including changes in the amounts
of rents received and rental expenses paid in connection with operating the
office buildings acquired and changes in the interest rates assumed on the
Company's secured revolving credit facility.
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KOGER EQUITY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
12/31/97 ADJUSTMENTS 12/31/97
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<S> <C> <C> <C>
ASSETS
Operating properties:
Real estate $679,029 $51,256 (a) $730,285
Furniture and equipment 2,220 2,220
Accumulated depreciation (104,700) (104,700)
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Operating properties - net 576,549 51,256 627,805
Properties under construction 27,586 27,586
Undeveloped land held for investment 13,249 7,100 (a) 20,349
Undeveloped land held for sale 1,512 1,512
Cash and temporary investments 16,955 16,955
Accounts receivable, net 5,646 5,646
Investment in Koger Realty Services, Inc. 472 472
Cost in excess of fair value of net assets acquired - net 1,870 1,870
Other assets 12,258 12,258
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TOTAL ASSETS $656,097 $58,356 $714,453
======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages and loans payable $181,963 $58,356 (a) $240,319
Accounts payable 8,802 8,802
Accrued real estate taxes payable 3,294 3,294
Accrued liabilities - other 6,623 6,623
Dividends payable 6,352 6,352
Advance rents and security deposits 4,801 4,801
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Total Liabilities 211,835 58,356 270,191
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Shareholders' Equity
Common stock 284 284
Capital in excess of par value 441,451 441,451
Retained earnings 30,947 30,947
Treasury stock, at cost (28,420) (28,420)
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Total Shareholders' Equity 444,262 444,262
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $656,097 $58,356 $714,453
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
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KOGER EQUITY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
1997 ADJUSTMENTS 1997
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<S> <C> <C> <C>
REVENUES
Rental and other rental services $ 109,501 $ 7,553 (a) $117,054
Management fees 2,637 2,637
Interest 1,274 1,274
Income from Koger Realty Services, Inc. 577 577
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Total revenues 113,989 7,553 121,542
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EXPENSES
Property operations 44,453 2,894 (a) 47,347
Depreciation and amortization 24,073 1,238 (b) 25,311
Mortgage and loan interest 16,517 4,170 (c) 20,687
General and administrative 6,374 6,374
Direct cost of management fees 1,896 1,896
Undeveloped land costs 413 7 (d) 420
Recovery of loss on land held for sale (379) (379)
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Total expenses 93,347 8,309 101,656
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INCOME BEFORE GAIN ON SALE OR DISPOSITION
OF ASSETS 20,642 (756) 19,886
Gain on sale or disposition of assets 1,955 1,955
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INCOME BEFORE INCOME TAXES 22,597 (756) 21,841
Income taxes 935 (151) 784
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INCOME BEFORE EXTRAORDINARY ITEM $ 21,662 $ (605) $ 21,057
========= ======= ========
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE BEFORE
EXTRAORDINARY ITEM:
Basic $ 1.01 $ 0.99
========= ========
Diluted $ 0.96 $ 0.94
========= ========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Basic 21,374 21,374
========= ========
Diluted 22,495 22,495
========= ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
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KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On or about March 31, 1998, the Company will consummate the Colonnade
Acquisition. This acquisition will be funded by drawing approximately $58.4
million under the Company's secured revolving credit facility. It is the
intent of the Company's management to operate the office buildings acquired in
a manner similar to the Company's existing office building portfolio. It is
currently management's intent that the undeveloped land acquired, pursuant to
this acquisition, will be held as an investment for future development.
2. UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet as of December 31, 1997 is based on
the historical balance sheet for the Company presented in the Annual Report on
Form 10-K for the period ended December 31, 1997. The unaudited pro forma
balance sheet includes adjustments assuming this acquisition occurred as of
December 31, 1997. Significant pro forma adjustments in the unaudited pro
forma balance sheet include the following:
(a) The Company will purchase the Colonnade Acquisition, which properties
are located in Birmingham, Alabama, for approximately $58,356,000.
This purchase will be funded with a $58,356,000 draw on the
Company's secured revolving credit facility.
3. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997
The unaudited pro forma statement of operations for the year ended
December 31, 1997 is based on the historical statement of operations for the
Company presented in the Annual Report on Form 10-K for the year ended December
31, 1997. The unaudited pro forma statement of operations includes adjustments
assuming that the Colonnade Acquisition occurred as of January 1, 1997.
Significant pro forma adjustments in the unaudited pro forma statement of
operations include the following:
(a) Adjustment required for the historical rental revenues and operating
expenses for the properties acquired. Operating expenses include
management costs and fees calculated using an estimated management fee
rate of 4% of total rental revenues of the properties.
(b) Adjustment required to reflect depreciation ($1,030,000) on the
properties acquired, based on the total cost of the Colonnade
Acquisition. The Company uses the straight-line method for
depreciation and amortization using an estimated life of 39 years
for buildings. Also, an adjustment required to reflect amortization
expense ($208,000) related to deferred financing costs for the
secured revolving credit facility.
(c) Adjustment required to reflect interest expense related to the assumed
amount drawn on the secured revolving credit facility ($58,356,000) to
fund the Colonnade Acquisition. The estimated average interest rate
on the secured revolving credit facility was 7.145 percent.
(d) Adjustment required to reflect real estate taxes on the unimproved
land purchased as part of the Colonnade Acquisition.
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KOGER EQUITY, INC.
UNAUDITED STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
AND ESTIMATED CASH TO BE MADE AVAILABLE BY OPERATIONS OF
KOGER EQUITY, INC. FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES
Rental and other rental services $117,074
Management fees 2,637
Interest 1,274
Dividends received from Koger Realty Services, Inc. 364
--------
Total revenues 121,349
--------
EXPENSES
Property operations 47,450
Depreciation and amortization 20,705
Mortgage and loan interest 20,687
General and administrative 6,106
Direct cost of management fees 1,866
Other 420
Compensation - exercise of stock options 3,852
--------
Total expenses 101,086
--------
Estimated Taxable Operating Income 20,263
Add Back: Depreciation and Amortization 20,705
--------
Estimated Cash To Be Made Available By Operations $ 40,968
========
</TABLE>
Note 1: This statement of estimated taxable operating results and estimated
cash to be made available by operations is an estimate of operating
results of the Company for the twelve month period ended December 31,
1997 assuming that the Colonnade Acquisition occurred on the first day
of the twelve month period. However, this statement does not purport
to reflect actual results for any period.
Note 2: Tax depreciation was determined based upon the actual tax depreciation
for the Company's existing portfolio and based upon the assumption
that the Colonnade Acquisition occurred on the first day of the twelve
month period.
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(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
23 Consent of Deloitte and Touche LLP
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KOGER EQUITY, INC.
Dated: March 26, 1998 By: JAMES L. STEPHENS
-------------------------------
James L. Stephens
Title: Vice President and
Chief Accounting Officer
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Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-55179 of Koger Equity, Inc. on Form S-3, Registration Statement No. 33-54617
of Koger Equity , Inc. on Form S-8, Registration Statement No. 333-20975 of
Koger Equity, Inc. on Form S-3, Registration Statement No. 333-23429 of Koger
Equity, Inc. on Form S-8 and Registration Statement No. 333-37919 of Koger
Equity, Inc. on Form S-3 of our report dated March 19, 1998, on the statement
of revenues and certain expenses of Birmingham Colonnade for the year ended
December 31, 1997 appearing in this Current Report on Form 8-K of Koger Equity,
Inc., dated March 23, 1998.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
March 26, 1998
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